Q-Free ASA

Valuation report

Financial Advisory | 30 June 2018 Strictly Private and Confidential

Contents

Mandate and Executive summary 3 Tom Husebø

Partner
Business overview 6
Office tel: +47 23 27 95 35
Valuation 9 Mobile tel: +47 907 54 744
Email: thusebo@deloitte.no
Appendices 17

Iver Lykke
Director
Office tel: +47 73 87 69 00
Mobile tel: +47 952 81 762
Email: ilykke@deloitte.no

This report is strictly private and confidential to the Recipient Parties (as defined in the contract dated 23.5.2018 (the “Contract”)).
Save as expressly provided for in the Contract, the report must not be recited or referred to in any document, or copied or made available (in whole or in part) to any other party.
We accept no responsibility or liability for the contents of the report to any other party.
For your convenience, this report may have been made available to you in electronic and hard copy format. Multiple copies and versions of this report may, therefore, exist in different
media. Only a final signed copy should be regarded as definitive.

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 2

 Valuation
Mandate
findings

Mandate and Executive summary

Mandate and Executive summary 3

Business overview 6

Valuation 9

Appendices 17

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 3

 Valuation
Mandate
findings
Mandate and Executive summary | Mandate
Documentation of fair value of carved out business in a demerger of Q-Free ASA
Background and purpose
• Q-Free ASA (“The Company” or “Q-Free”) are preparing to carve-out the
company’s Norwegian based operations to a new company (subsidiary)
through a drop-down demerger.
• According to the Norwegian Tax Act (“Skatteloven”), the share capital is in
the remaining company (Q-Free ASA) shall be reduced in accordance with
the share of fair value in the demerger. Hence, a valuation of both the
carved-out and remaining assets and liabilities is required.
• As agreed with management of Q-Free, the fair value of Q-Free ASA equity
before demerger is assumed to be reflected in the shares’ total Market Cap
at Oslo Stock Exchange. The Market Cap is considered to reflect the
market pricing of the shares in Q-Free as a listed company, assuming
sufficient trading volume.
• Our valuation comprises the carved-out Norwegian based operations.
Mandate and scope
• Deloitte AS ("Deloitte") will, as requested by Q-Free, conduct an
independent valuation of the Norwegian based operations in Q-Free ASA
(the carved-out business).
• The valuations will be performed based on the valuation methods that
Deloitte finds most appropriate
• Valuation date: 30 June 2018
• The valuation will be performed mainly based on information provided by
the Company. We will not perform a thorough verification of the
information received by the Company.
• We will not do a on-site inspection of the Company
• We will present our conclusions in a written report where the main
assumptions for the valuation will be documented. In addition, we offer a
oral presentation of our conclusions for the Company.
Valuation of Q-Free Norge AS - Report – 30 Jun 2018
Confidentiality
• The content of this report is confidential and solely for the information and
internal use of the addressees at Q-Free and not to be relied upon by any
other person or entity.
• We take no responsibility or liability towards third parties for any loss,
damage, cost or expense caused by use of or reliance on information
disclosed in this report.
• This report must not be recited or referred to in any document, or copied
or made available (in whole or in part) to any other party, without
Deloitte’s prior written consent.
Disclaimer
• In the course of our analysis, we have relied on financial and operational
data provided by management of Q-Free, together with information from
public sources. Without independent verification, we have relied upon
these data as accurately reflecting the results of the operations and
financial position of Q-Free and matters and items of relevance for the
valuation.
• We assume that management of Q-Free have not omitted or misstated any
factors of relevance. Any such omissions or misstatements may materially
affect our conclusions.
• We, as valuation consultants, have not audited these data and express no
opinion or other form of assurance regarding their accuracy or fairness of
presentation. We take no financial or legal responsibility for the
completeness or accuracy of the information that this report is based on.
• We understand that any prospective financial information provided by
management of Q-Free is based on best estimates and expectations of
future economic and market development.
• Our analysis was completed 28.06.2018 and we have not updated our
since that date.
4
 Valuation
Mandate
findings

Mandate and Executive summary | Valuation findings

We estimate an equity value of NOKm 330 for the carved-out business, which implies a remaining value in
Q-Free ASA at NOKm 383 based on current Market Cap

Summary Equity Summary equity value, carved-out business (Q-Free Norge AS)

• Our valuation is mainly based on discounted cash flow value (DCF) derived
EV/Sales peer group 485.2 ​​ 520.6 from management forecast, supported by multiple analyses (EV/Sales).
• Enterprise value 30.06.18 based on DCF is estimated at NOK 328.
EV/Sales Q-Free ASA 337.3 350.1
Adjusting for net interest bearing debt and share of value of tax loss carry
forward, we estimate an equity value of NOKm 330, with an indicative
value range from NOKm 310 to NOKm 350.
DCF 310.4 ​ 350.4 • The nature of the business is relatively volatile, with large public tenders
and contracts, possibly with significant effects on revenues and earnings.
0 200 400 600 Although the forecast is based on management’s best estimates, it should
be noted that the valuation is sensitive to changes in forecast
NOKm assumptions.

Summary equity value split

• Valuation of Q-Free ASA before demerger has not been a part of our
scope. Under the assumption that the Market Cap of Q-Free ASA at Oslo
Stock Exchange (28.06.18) represents fair value of equity, our valuation
Estimated values for the two seperate entities
suggest a value split of 53.5% (remaining Q-Free ASA) and 46.5% (Q-
800 Free Norge AS). In our opinion it is fair to assume that changes in market
700 cap between 28.06 and valuation date 30.06 will affect both the carved-
600
out and remaining business, thus not significantly affect the value ratio.
330,4
500 • The valuation indicates excess values for both companies:
NOKm

400
710,2 Implicit excess values
300
Q-Free
200
NOKm Q-Free ASA Total
379,8 Norge AS
100 Fair value equity 379,8 330,4 710,2
- Book value equity 333,0 123,5 456,5
Q-Free ASA before Estimated value Q Free Q-Free ASA post Implicit excess values 46,8 206,9 253,7
demerger Norge AS demerger
Source: Management information • Please note that the equity of Q-Free ASA will be re-established after the
full drop down demerger process, hence the total equity in the table above
will reflect Q-Free ASA’s equity after the reorganization.
Valuation of Q-Free Norge AS - Report – 30 Jun 2018 5
 Q-Free business Group structure

Business overview

Mandate and Executive summary 3

Business overview 6

Valuation 9

Appendices 17

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 6

 Q-Free business Group structure

Business overview | Q-Free business

Q-Free develops and supplies various complete Intelligent Transportation Systems

Q-Free
Q-Free
• Founded in 1984, originally focusing on the development and supply of
Tolling electronic toll collection systems. Today, the Company has grown to
- DSCR tags & readers become one of the world’s leading suppliers of complete Intelligent
- ALPR/ANPR solutions Transportation Systems (ITS).
- Electronic toll solutions
• Q-Free is headquartered in Trondheim, Norway, but has offices in 17
- Congestion charging
additional countries. The offices comprise approximately 415 employees.

Parking - Largest region is Europe and Latin America (43% of revenue), followed
- Parking guidance by North America (28%), Nordic region (17%) and Asia Pacific, Middle
- Parking access control East and Africa (9%)
• The solutions provided are illustrated on the left. Tolling is the most
important area, contributing 62% of 2017 revenue.
Infomobility - In Norway, Tolling and parking are the two main solutions. Tolling is
- Weight in motion mainly associated with electronic toll solutions that enables pre or post
- Traffic counters payments. The solutions are customizable to include price
- Cycle and pedestrian detection differentiation and improve traffic flow and environmental impact.
- Journey time monitoring
- Parking solutions use real time monitoring of the availability of parking
- Weather & air quality monitoring
spaces and their location.

Urban
- Traffic controllers
- Centralised traffic controller SW
- Co-operative ITS

Inter-urban
- Advanced traffic management
- Traffic information
- Ramp metering
- Truck parking

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 7

 Q-Free business Group structure

Business overview | Group structure

Q-Free will carve-out the Norwegian based operations from Q-Free ASA by a “drop-down”-demerger to a
new subsidiary, Q-Free Norge AS

Changes to group structure

1. In the demerger, all assets and liabilities related to the Norwegian based
operations from Q-Free ASA are transferred to an interim newco (“Q-Free
Shareholders Tolling AS”).
2. Q-Free Norge AS is established as a newco owned by Q-Free ASA.
3. The interim newco is merged with Q-Free Norge AS.

According to the Norwegian Tax Act, the share capital of Q-Free ASA has to
Q-Free ASA be reduced according to relative share of fair value in the demerger.
Demerger

Existing
Existing Q-Free Norge AS Q-Free Tolling AS
subsidiaries
Existing
subsidiaries
subsidiaries

Merger

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 8

 Historical Relative
Balance sheet Prognosis DCF
financials valuation

Valuation

Mandate and Executive summary 3

Business overview 6

Valuation 9

Appendices 17

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 9

 Historical Relative
Balance sheet Prognosis DCF
financials valuation

Valuation | Historical financials

Q-Free delivered a large project in Slovenia in FY17, leading to a significant increase in revenues and
margins compared to previous years

Q-Free Norge AS - Historical income statement

Historical P&L
NOKm FY15 FY16 FY17 1H18
Pro forma historical P&L has been provided by Management to illustrate the
Revenues 352.7 420.0 496.1 170.0
operations transferred to Q-Free Norge AS on a standalone basis. Note that
Cost of goods sold (141.4) (128.6) (139.2) (42.2) 1H18 contains actual numbers for January – May and forecast for June.
Contractors (23.7) (64.5) (61.8) (25.4)
Gross profit 187.6 226.9 295.1 102.5 • Revenues for Q-Free Norge AS consist of income from the Norwegian
Salaries, w ages etc (97.8) (95.3) (104.8) (47.2) market, which is mostly from tolling stations, in addition to projects and
External services (21.9) (14.7) (14.4) (6.6) services delivered to other countries by the main office in Norway.
Travel expenses (13.4) (11.5) (11.0) (3.8) - Tolling revenue in Norway decreased last year, however global revenue
Offices supplies (21.8) (21.1) (21.9) (10.9) was up 11% from FY16 to FY17, driven by more revenues from tolling,
Insurance (3.0) (4.6) (3.3) (1.5) infomobility, urban and inter-urban, partly offset by decreasing in
Freight (0.3) (0.2) (0.3) (0.1) parking.
Rent machinery & tools (3.3) (2.1) (1.2) (0.6)
- In FY17, and partly in the end of FY16 and beginning of FY18, there
Marketing / promotions (6.6) (7.8) (6.0) (2.1)
have been extraordinarily large revenues from delivery of a large
Service & Maintenance (0.1) (0.2) (0.1) (0.0)
nationwide truck-tolling system in Slovenia (largest project for Q-Free
Operating materials (5.3) (4.7) (4.8) (2.2)
to this date).
Bad debt losses (0.3) 2.8 (0.4) -
Other OPEX (10.9) (10.1) (17.8) (13.5) • Cost of goods sold (COGS) consists mainly of material and parts for
Total fixed costs (184.9) (169.5) (186.3) (88.6) products while contractors are the use of external consultants or personnel
EBITDA 2.7 57.4 108.9 13.9 from other subsidiaries.
Depreciation and amortisation (36.1) (17.4) (20.2) (8.7) • Opex have remained fairly stable from FY15 to FY17, implying high growth
EBIT (33.3) 40.1 88.7 5.2 in EBIT and EBITDA-margins. Management comments that the business is
scalable as a high share of these costs are relatively fixed regardless of
Grow th in Revenues n/a 19.1% 18.1% n/a
income.
Gross-margin 53.2% 54.0% 59.5% 60.3%
EBITDA-margin 0.8% 13.7% 21.9% 8.2% • The reduction in 1H18 run-rate revenues is mainly due to reduced income
EBIT-margin (9.5%) 9.5% 17.9% 3.0% from the Slovenia project.
So urce: M anagement info rmatio n

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 10

 Historical Relative
Balance sheet Prognosis DCF
financials valuation

Valuation | Balance sheet

Assets and liabilities related to the Norwegian based operations will be transferred to Q-Free Norge AS (1/2)

Q Free - Balance sheet and mapping Dem erger

Q-Free Q-Free Norge AS BS Mapping
Q-Free ASA Q-Free ASA Q-Free ASA
Norge AS 30.06.18E Balance sheet split
NOKm Note 31.12.17 30.06.18E 30.06.18E 30.06.18E NWC NIBD Non-op. Other
The split of assets and liabilities between Q-
Deferred tax asset 1 - - - - - - -
Free ASA and newco Q-Free Norge AS has been
Product development costs 55.3 62.2 - 62.2 62.2
provided by the Management of Q-Free.
Machinery, fixture & fittings 2 11.1 11.9 - 11.9 11.9
Investment in subsidiaries 3 299.3 299.3 299.3 - 1. Q-Free ASA has not capitalised deferred tax
Loans to group companies 4 211.4 244.2 244.2 -
asset (including value of tax loss carried
forward, NOKm 97.6 at year end FY17) as
Investments in other companies 0.4 0.4 0.4 -
it is uncertain if and when it will be utilised.
Non-current assets 577.5 618.0 543.8 74.2 - - - 74.2
See appendix 6 for more information.
Inventories 12.4 13.2 - 13.2 13.2 -
Work in progress 200.7 34.1 - 34.1 34.1 - 2. Consists mainly of production lines, IT
Account receivables 22.8 36.1 - 36.1 36.1 - infrastructure and furnishing which are
Receivables group companies 5 108.9 89.7 1.7 88.0 88.0 - assumed to follow Q-Free Norge AS
Other current assets 4.6 4.4 - 4.4 4.4 - 3. Investments in subsidiaries are assumed to
Cash - - - - - be owned by the holding company, Q-Free
Current assets 349.4 177.5 1.7 175.8 175.8 - - - ASA.
Total assets 926.9 795.5 545.5 249.9 175.8 - - 74.2 4. Consists of loans to subsidiaries, where the
Share capital 33.9 33.9 largest one is NOKm 155.6 to Q-Free
Share premium 578.3 578.3 America related to acquisition of other
Other paid in capital 20.7 20.7 companies.
Uncovered loss / retained earnings (167.1) (176.4) 5. The receivables related to operations are to
Total equity 465.8 456.5 333.0 123.5 63.9 (14.6) - 74.2 follow Q-Free Norge AS, while the part
Debt to financial institutions 125.0 100.0 100.0 - related to interest on loans to group
Other non-current liabilities 6 15.3 14.6 - 14.6 14.6 - companies (NOKm 1.7) are to stay in Q-
Loans from group companies 32.1 35.9 35.9 - Free ASA.
Long-term interest-bearing debt 172.4 150.4 135.9 14.6 - 14.6 - - 6. Relates to future cost of changing from
Debt to financial institutions 127.1 45.1 45.1 - defined benefit to defined contribution
Accounts payable 50.2 35.3 - 35.3 35.3 - pension scheme and is assumed to follow
Debt to group companies 7 38.2 45.6 21.4 24.2 24.2 - the employees.
Tax payables (1.3) (1.3) -
Public duties payable 8.3 4.8 4.8 -
Other short term debt 8 64.9 59.1 6.8 52.3 52.3 -
Short-term debt/ Current debt 288.7 188.5 76.7 111.8 111.8 - - -
Equity and liabilities 926.9 795.5 545.5 249.9 175.8 - - 74.2

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 11

 Historical Relative
Balance sheet Prognosis DCF
financials valuation

Valuation | Balance sheet

Assets and liabilities related to the Norwegian based operations will be transferred to Q-Free Norge AS (2/2)

Q Free - Balance sheet and mapping Dem erger

Q-Free Q-Free Norge AS BS Mapping
Q-Free ASA Q-Free ASA Q-Free ASA
Norge AS 30.06.18E Balance sheet split
NOKm Note 31.12.17 30.06.18E 30.06.18E 30.06.18E NWC NIBD Non-op. Other
7. NOKm 21.4 is debt to Q-Free Netherlands
Deferred tax asset 1 - - - - - - -
and Q-Free Brazil and owed interest will
Product development costs 55.3 62.2 - 62.2 62.2
remain in Q-Free ASA. NOKm 24.2 relates
Machinery, fixture & fittings 2 11.1 11.9 - 11.9 11.9
to accounts payable to group companies,
Investment in subsidiaries 3 299.3 299.3 299.3 - and is considered as NWC.
Loans to group companies 4 211.4 244.2 244.2 -
8. Mainly consists of accrued expenses for
Investments in other companies 0.4 0.4 0.4 -
salary, holiday pay and others. The part
Non-current assets 577.5 618.0 543.8 74.2 - - - 74.2
related to holiday pay, interest on a bank
Inventories 12.4 13.2 - 13.2 13.2 -
loan and board remuneration (NOKm 6.8)
Work in progress 200.7 34.1 - 34.1 34.1 -
will remain in Q-Free ASA, while the other
Account receivables 22.8 36.1 - 36.1 36.1 -
items is assumed to be transferred to Q-
Receivables group companies 5 108.9 89.7 1.7 88.0 88.0 - Free Norge AS.
Other current assets 4.6 4.4 - 4.4 4.4 -
Cash - - - - -
Current assets 349.4 177.5 1.7 175.8 175.8 - - - Balance sheet mapping
Total assets 926.9 795.5 545.5 249.9 175.8 - - 74.2 • As basis for our valuation, the estimated
Share capital 33.9 33.9 balance sheet of the carved-out Q-Free
Share premium 578.3 578.3 Norge AS is split into Net Working Capital,
Other paid in capital 20.7 20.7 Net Debt and other items.
Uncovered loss / retained earnings (167.1) (176.4)
Total equity 465.8 456.5 333.0 123.5 63.9 (14.6) - 74.2
Debt to financial institutions 125.0 100.0 100.0 -
Other non-current liabilities 6 15.3 14.6 - 14.6 14.6 -
Loans from group companies 32.1 35.9 35.9 -
Long-term interest-bearing debt 172.4 150.4 135.9 14.6 - 14.6 - -
Debt to financial institutions 127.1 45.1 45.1 -
Accounts payable 50.2 35.3 - 35.3 35.3 -
Debt to group companies 7 38.2 45.6 21.4 24.2 24.2 -
Tax payables (1.3) (1.3) -
Public duties payable 8.3 4.8 4.8 -
Other short term debt 8 64.9 59.1 6.8 52.3 52.3 -
Short-term debt/ Current debt 288.7 188.5 76.7 111.8 111.8 - - -
Equity and liabilities 926.9 795.5 545.5 249.9 175.8 - - 74.2

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 12

 Historical Relative
Balance sheet Prognosis DCF
financials valuation

Valuation | Prognosis
Forecasted income statement is based on management’s assumptions

Q-Free Norge AS - Forecasted income statement

Assumptions for the forecast period
NOKm 2H18 FY18 FY19 FY20 FY21 FY22
Revenues 159.7 329.7 366.0 406.2 450.9 500.5 Forecasts are based on FY18 budget and annual growth rates for revenues
Cost of goods sold (50.9) (93.0) (103.2) (114.6) (127.2) (141.2) and costs FY19 – FY22. Please refer to appendix 2 for more details.
Contractors (22.7) (48.1) (53.4) (59.3) (65.8) (73.1) • FY18 budget:
Gross profit 86.1 188.5 209.3 232.3 257.8 286.2 - Management has provided budget for FY18 in which they assume a
Salaries, w ages etc (62.4) (109.7) (116.9) (124.6) (132.9) (141.6) significant reduction of 34% in revenues compared to FY17. The
External services (3.6) (10.3) (10.5) (10.8) (11.1) (11.3) reduction is due to less revenue from the Slovenia project which had a
Travel expenses (5.6) (9.4) (9.6) (9.9) (10.1) (10.4) large impact on FY17 revenue. COGS is expected to decrease almost as
Offices supplies (11.3) (22.1) (22.7) (23.2) (23.8) (24.4) much as revenue, however total fixed costs have remained stable.
Insurance (1.4) (2.9) (3.0) (3.1) (3.1) (3.2)
• FY19-FY22 forecast:
Freight (0.1) (0.2) (0.2) (0.3) (0.3) (0.3)
Rent machinery & tools (1.1) (1.7) (1.8) (1.9) (2.0) (2.1) - Revenue is assumed to increase by 11% each year. This is in line with
the expected growth in the ITS-market according to market analyses
Marketing / promotions (4.4) (6.6) (6.9) (7.2) (7.6) (8.0)
by Grand View Research and Radiant Insights.
Service & Maintenance (2.8) (2.8) (3.0) (3.1) (3.3) (3.4)
Operating materials (3.3) (5.5) (5.8) (6.1) (6.4) (6.7) - COGS and costs for contractors are expected to increase similarly,
Bad debt losses - - - - - - implying a constant gross margin.
Other OPEX (5.2) (18.7) (19.2) (19.6) (20.1) (20.6) - Salaries are expected to increase with inflation, but due to annual
Total fixed costs (101.3) (189.9) (199.6) (209.8) (220.6) (232.1) increase of staff by 4%, salaries are expected to increase by almost
- 7%.
EBITDA (15.2) (1.4) 9.7 22.5 37.2 54.1
- - External services, travel expenses, offices supplies, insurance, freight
Depreciation and amortisation (13.0) (21.7) (22.2) (22.8) (23.3) (23.9)
- and other opex are assumed to increase by inflation (2.5%).
EBIT (28.2) (23.1) (12.5) (0.3) 13.9 30.2
- Rent of machinery & tools, marketing / promotions, service and
Grow th in Revenues n/a (33.5%) 11.0% 11.0% 11.0% 11.0%
maintenance and operating materials are expected to increase by 5%
Gross-margin 53.9% 57.2% 57.2% 57.2% 57.2% 57.2%
as it is more dependent on revenues.
EBITDA-margin (9.6%) (0.4%) 2.6% 5.5% 8.3% 10.8%
EBIT-margin (17.7%) (7.0%) (3.4%) (0.1%) 3.1% 6.0% - There are not expected any losses on bad debt.
So urce: M anagement info rmatio n - Average NWC in percentage of LTM revenue from 1Q17 to 2Q18
(excluding effect of the Slovenia project) , was 12.6%, which we have
assumed is the normalised level going forward.
- Capex is assumed to grow by inflation (2.5% from FY18 to FY22).
The prognosis assumes that 80% of estimated overhead costs in Q-Free ASA
post demerger, approx. NOKm 8, will be charged to Q-Free Norge AS. This
adjustment is also reflected in the pro forma historical P&L figures provided
by management.
Valuation of Q-Free Norge AS - Report – 30 Jun 2018 13
 Historical Relative
Balance sheet Prognosis DCF
financials valuation

Valuation | DCF
EV of NOKm 328 based on DCF approach

Q-Free Norge AS - DCF

DCF assumptions
NOKm FY16 FY17 YTD18 YTG18 FY19 FY20 FY21 FY22 TV (23)
EBIT 40.1 88.7 5.2 (28.2) (12.5) (0.3) 13.9 30.2 31.0 • Projected cash flows are based on
Tax (9.2) (20.4) (1.2) 6.5 2.9 0.1 (3.2) (7.0) (7.1) management’s assumptions for the
NOPLAT 30.8 68.3 4.0 (21.7) (9.6) (0.2) 10.7 23.3 23.9 prognosis period.
• NWC is assumed to equal 12.6% of
Depreciation 17.4 20.2 8.7 13.0 22.2 22.8 23.3 23.9 24.5 LTM revenue, which is the quarterly
Capex (22.0) (18.6) (15.7) (3.3) (19.5) (20.0) (20.5) (21.0) (24.5) average for 1QFY17 to 2QFY18. Please
Δ NWC - 57.2 5.4 (11.2) (4.6) (5.1) (5.6) (6.2) (1.6) refer to appendix 5 for more details.
Free cash flow (FCF) 26.2 127.1 2.3 (23.3) (11.5) (2.5) 7.9 19.9 22.3 • Capex is assumed to equal Capex level
in FY17 and increase with inflation of
Period 0.3 1.0 2.0 3.0 4.0 2.5% subsequently.
Discount rate 1.0 0.9 0.9 0.8 0.8
• The future cash flows are discounted
Present value FCF (22.9) (10.7) (2.2) 6.4 15.0
by the estimated Weighted Average
Cost of Capital (WACC) of 7.4%.
Sum CF Share CF
Present value FCF (14.4) (4.4%) • Growth in cash flows after FY22 is
Terminal value 341.9 104.4%
assumed to stabilise at 2.5% (long
term inflation rate).
Enterprise value (EV) 327.5
• Terminal value is calculated as net
present value of future cash flows
using the Gordon’s growth formula.

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 14

 Historical Relative
Balance sheet Prognosis DCF
financials valuation

Valuation | DCF
Equity value is estimated to NOKm 330 with a value range of NOKm 310 – NOKm 350 based on the DCF-
approach

EV to Equity bridge Equity value based on DCF

400
17.5
• Due to the negative estimated cash flows in the beginning of the prognosis
(14.6)
period, the present value of cash flows in the explicit prognosis period is
300
negative. However, the strong recovery towards the end of the prognosis
period is what drives the enterprise value through the terminal value.
NOKm

200
341.9 327.5 330.4
100 • To derive the equity value, we adjust for NIBD, tax loss carry forward and
(14.4) potentially a demerger receivable.
-
- NIBD of NOKm 14.6 which is a liability related to changing from defined
(100) benefit to defined contribution pension scheme. Please refer to the
balance sheet mapping for more details.
- Tax loss carryforward is related to the Norwegian entity and 46,5% is
assumed to follow Q-Free Norge AS based on the valuation ratio. We
have adjusted for the present value of future estimated tax savings.
Please refer to appendix 6 for more details.
Source: Management inf ormation • A part of the Q-Free business is volatile in nature, depending on public
tenders and large public and private contracts. Thus, the future forecasts
have some inherent risks/uncertainties (both upside and downside). The
lower table illustrates the equity value’s sensitivity for changes in the
Equity sensitivity EBITDA-margin after FY22 and changes to the WACC.
% Δ EBITDA-margin
330.4 (2.0%) (1.0%) - 1.0% 2.0%
(1.0%) 261.6 322.4 344.0 423.2 502.3
(0.5%) 256.0 315.8 337.1 414.9 492.7
Δ WACC - 250.6 309.3 330.4 406.9 483.4
0.5% 245.2 303.0 323.9 399.1 474.3
1.0% 240.0 296.9 317.4 391.4 465.3

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 15

 Historical Relative
Balance sheet Prognosis DCF
financials valuation

Valuation | Relative valuation

Relative valuation yields an equity value in the range of NOKm 337 and NOKm 521

Q-Free Norge AS - Multiple valuation

Trading multiples
NOKm FY17 FY18 FY19
• We have established a peer group of comparable companies for Q-Free.
Trading multiples: peer group
The peer group consists of companies within infrastructure and ITS
EBITDA 108.9 (1.4) 9.7 technology industries. Please refer to appendix 3 for more information.
Observed EV/EBITDA 10.4x 8.9x 8.5x
Estim ated EV 1,131.3 (12.4) 82.5 • We have considered EV/EBITDA, EV/EBIT and EV/Sales multiples for FY17,
EV to equity adjustments 2.9 2.9 2.9 FY18 and FY19. Revenues and earnings in FY17 are considered
Equity value 1,134.3 - 85.4 extraordinary high. The FY17 multiples all indicate a higher value for Q-
Free Norge AS than the Market Cap for Q-Free ASA, which is not
reasonable. In addition, as the results are negative or very low in FY18
Trading multiples: peer group
and FY19, the EV/EBIT and EV/EBITDA multiples are not suited. Hence, we
EBIT 88.7 (23.1) (12.5) mainly base our multiple valuation on the FY18 and FY19 EV/Sales
Observed EV/EBIT 13.8x 12.7x 11.9x multiples.
Estim ated EV 1,224.8 (293.5) (149.3)
EV to equity adjustments 2.9 2.9 2.9 • We note that peers are expected to achieve higher margins than Q-Free
Equity value 1,227.7 - -
ASA going forward, which explains a higher valuation when employing an
EV/Sales multiple for the peer group. We consider Q-Free ASA’s EV/Sales
multiples to be more relevant than the peer group. Please refer to
Trading multiples: peer group appendix 3 for more details.
Sales 496.1 329.7 366.0
Observed EV/Sales 1.5x 1.5x 1.4x
Estim ated EV 722.4 482.3 517.7
EV to equity adjustments 2.9 2.9 2.9
Equity value 725.4 485.2 520.6
So urce: M anagement info rmatio n

Trading multiples: Q-Free ASA

Sales 496.1 329.7 366.0
Observed EV/Sales 1.0x 1.1x 0.9x
Estim ated EV 499.5 347.2 334.3
EV to equity adjustments 2.9 2.9 2.9
Equity value 502.4 350.1 337.3
So urce: M anagement info rmatio n

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 16

 A1: Valuation A2: Prognosis A3: Relative A6: Tax loss
A4: WACC A5: NWC
methodology assumptions valuation carry forward

Appendices

Mandate and Executive summary 3

Business overview 6

Valuation 9

Appendices 17

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 17

 A1: Valuation A2: Prognosis A3: Relative A6: Tax loss
A4: WACC A5: NWC
methodology assumptions valuation carry forward

Appendices | A1: Valuation methodology

Methodology

Description Advantages Disadvantages Valuation principles

• Indicative valuation based on
company prognosis
• Future cash flow is used to
Discounted cash flow calculate the present value of the
(DCF) assets, adjusted for risk and time
value of money.
• Assessment of important value • The need for refined input FCFF Illustrative
driving factors, such as growth, • Sensitive to small changes in
margins and investments. assumptions
• Calculating the value of operations • Substantial part of the value in the Future cash flow is
with the ability of scenario analyzes terminal period discounted to the present
using an appropriate rate
of return

2018 2019 2020 2021 2022

• Indicative value based on trading
multiples (like i.e. EV / EBITDA and
Comparable listed EV / EBIT) of comparable
companies
companies
• Focus on expected profit in current
(Peer-group) year and the next year
• Indicative value based on multiples
(like i.e. EV / EBITDA and EV /
EBIT) of comparable transactions
Comparable • Focus on expected profit in current
transactions year and the next year
• What is the stock market willing to
pay for a minority interest in
companies with similar
characteristics?
• Simple basis for discussion in a
transaction
• What would buyers in other
transactions pay for a majority
stake in a similar company or
industry?
• Includes premium to obtain control
of the company
• Sensitive to individual events and
EBITDA Illustrative
accounting principles
• The need for a correct market price
• No fundamental analysis
Relative valuation
models primarily focus
on current financial
• Typically based on historical performance
accounting numbers, while
transactions probably is valuated
based on future performance

2016 2017 2018 2019 2020

Illustrative
• Book values of all assets and • The method is relevant for • Does not reflect value inherent in
liabilities as at the valuation date companies whose assets are workforce, market position, BV Adj. FV
Fixed assets 100 10 110
are replaced by their estimated subject to regular trading and customer relationships etc.
Current assets 50 (5) 45
Adjusted balance market values where observable market prices Total assets 150 5 155
sheet • Any positive or negative excess exist, as well as in cases of
values are adjusted for relevant liquidation Equity 75 4 79
LT liabilities 60 60
taxes and reflected in an adjusted ST liabilities 15 1 16
equity value Total equity & liab. 150 5 155

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 18

 A1: Valuation A2: Prognosis A3: Relative A6: Tax loss
A4: WACC A5: NWC
methodology assumptions valuation carry forward

Appendices | A2: Prognosis assumptions

Growth rates for the separate items in the financial statement, according to Management’s assumptions

Management's assumptions
NOKm FY18B FY19 FY20 FY21 FY22
Grow th revenues (33.5%) 11.0% 11.0% 11.0% 11.0%
COGS assumptions:
Cost of Goods Sold (33.2%) 11.0% 11.0% 11.0% 11.0%
Contractors (22.1%) 11.0% 11.0% 11.0% 11.0%
Total fixed costs
Grow th FTE's 4.0% 4.0% 4.0% 4.0%
Salary increases 2.5% 2.5% 2.5% 2.5%
Total grow th salaries and w ages 4.7% 6.6 % 6.6 % 6.6 % 6.6 %
External services (28.9%) 2.5% 2.5% 2.5% 2.5%
Travel expenses (15.0%) 2.5% 2.5% 2.5% 2.5%
Offices supplies 0.7% 2.5% 2.5% 2.5% 2.5%
Insurance (12.7%) 2.5% 2.5% 2.5% 2.5%
Freight (19.6%) 2.5% 2.5% 2.5% 2.5%
Rent machinery & tools 42.0% 5.0% 5.0% 5.0% 5.0%
Marketing / promotions 8.8% 5.0% 5.0% 5.0% 5.0%
Service & Maintenance 3,619% 5.0% 5.0% 5.0% 5.0%
Operating materials 14.4% 5.0% 5.0% 5.0% 5.0%
Bad debt losses (100.0%) 11.0% 11.0% 11.0% 11.0%
Other OPEX - - - - -

NWC in % of LTM revenue 12.6% 12.6% 12.6% 12.6% 12.6%

Capex grow th 2.5% 2.5% 2.5% 2.5% 2.5%

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 19

 A1: Valuation A2: Prognosis A3: Relative A6: Tax loss
A4: WACC A5: NWC
methodology assumptions valuation carry forward

Appendices | A3: Relative valuation

Comparable listed companies are trading at EV/Sales multiples of 1.4x to 1.5x, however Q-Free ASA is
trading from 0.9x to 1.1x due to lower expected margins compared to peers

Enterprise
Market Cap
Value EV/Sales EV/EBITDA EV/EBIT EBITDA - Margin
(NOKm)
(NOKm)
Name 30.06.2018 30.06.2018 2017 2018 2019 2020 2017 2018 2019 2020 2017 2018 2019 2020 2017 2018 2019 2020
Kapsch TrafficCom AG 4,478 4,221 0.7x 0.6x 0.6x 0.6x 6.6x 6.7x 6.3x 6.1x 8.5x 9.1x 8.0x 7.6x 11 % 9% 10 % 10 %
Indra Sistemas, S.A. 18,662 24,514 0.8x 0.9x 0.8x 0.8x 11.0x 8.7x 8.0x 7.4x 12.7x 12.2x 10.6x 9.8x 7% 10 % 10 % 11 %
Thales S.A. 219,272 193,620 1.2x 1.3x 1.1x 1.0x 10.4x 10.1x 8.5x 7.6x 13.8x 12.7x 10.6x 9.5x 12 % 13 % 13 % 14 %
Ingenico Group - GCS 45,406 59,646 2.4x 2.3x 2.2x 2.0x 12.0x 11.8x 10.7x 9.7x 15.2x 13.6x 12.5x 11.3x 20 % 20 % 20 % 21 %
Safran SA 422,478 408,144 2.4x 2.1x 2.0x 1.9x 11.3x 12.1x 10.5x 9.3x 14.4x 16.1x 13.7x 11.7x 22 % 18 % 19 % 20 %
Abertis Infraestructuras, S.A. 158,170 301,831 6.0x 5.9x 5.7x 5.9x 8.8x 8.8x 8.4x 8.7x 14.8x 14.5x 13.7x 14.2x 68 % 67 % 68 % 68 %
Sensys Gatso Group AB (publ) 1,007 1,033 3.5x 3.3x 2.6x 2.1x -39.9x 69.5x 15.4x 10.1x -18.9x -45.4x 21.4x 14.6x -9 % 5% 17 % 21 %
VINCI SA 442,116 587,957 1.5x 1.5x 1.4x 1.4x 8.9x 8.9x 8.5x 8.2x 13.1x 12.6x 11.9x 11.4x 16 % 16 % 17 % 17 %
Atlantia S.p.A. 188,197 312,029 5.1x 5.4x 5.2x 4.9x 8.9x 8.7x 7.6x 7.1x 12.8x 12.3x 11.0x 10.2x 57 % 62 % 68 % 69 %
init innovation in traffic systems SE 1,635 1,845 1.4x 1.4x 1.3x 1.2x 14.5x 11.8x 9.6x 7.8x 21.5x 15.8x 12.4x 9.8x 10 % 12 % 13 % 15 %
Median - Overall 1.5x 1.5x 1.4x 1.4x 10.4x 8.9x 8.5x 7.8x 13.8x 12.7x 11.9x 10.2x 16.3 % 16.4 % 17.0 % 20.3 %
Q-Free ASA 703 964 1.0x 1.1x 0.9x 0.9x 14.2x 10.9x 7.2x 6.7x 18.2x 27.6x 11.2x 10.3x 7% 10 % 13 % 13 %
Source: CapitalIQ
Note: Sensys Gatso Group AB (publ) is excluded from the peer group in the relative valuation due to extreme EV/EBITDA and EV/EBIT multiples in FY17 and FY18.

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 20

 A1: Valuation A2: Prognosis A3: Relative A6: Tax loss
A4: WACC A5: NWC
methodology assumptions valuation carry forward

Appendices | A4: WACC

An after-tax WACC of 7.4% is applied in the valuation

WACC calculation
Comments to WACC calculation
Assum ptions
Risk free interest rate 1.90 % Norw egian 10Y government bond • As Q-Free ASA is listed, and is the most comparable
company for the new company Q-Free Norge AS, we use
Market risk premium 5.13 % Damodaran
Q-Free ASA’s debt to equity-ratio and unlevered beta in
Marginal tax rate 23 % Marginal tax rate
the WACC-calculation.
Cost of debt estimate 5.26 % 10Y Sw ap rate and premium of 0.03
Cost of debt after tax 4.05 % • Note that we require a R-squared of at least 0.10 for a
Peer group median capital structure (D/E) 0.37 Q-Free ASA D/E peer to be included in the WACC calculation. The
Applied unlevered beta 0.69 Q-Free ASA Beta companies marked in grey in the peer group section do
Levered equity beta 0.89 not meet this criterion and are therefore not included in
Market risk premium 5.13 % the calculation.
Beta of equity 0.89 • We set the risk free interest rate to 1.90%, based on the
+/- Size / company-specific adjustment 2.2% Deloitte/Erasmus University Norwegian 10 year government bond.
Cost of equity 8.7 %
• Cost of debt is the sum of the 10 year Norwegian swap
Equity to total capital 73 %
rate as per 13.06.2018 at 2.26%, upon which we apply a
Cost of debt after taxes 4.05 %
cost of debt premium of 3%.
Debt to total capital 27 %
WACC 7.41 % • The market risk premium is set to 5.13%, based on
WACC (rounded) 7.40 % Damodaran per July 2017.
• The Size/company-specific adjustment is 2.2% in line
with the Erasmus University study from April 2015
(Please refer to the end of appendix 4).
• This suggests a WACC of 7.4% for Q-Free.

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 21

 A1: Valuation A2: Prognosis A3: Relative A6: Tax loss
A4: WACC A5: NWC
methodology assumptions valuation carry forward

Appendices | A4: WACC

We apply a size premium equal to 2.2% in line with a Erasmus University study from April 2015

Source: A Study of Differences in Returns between Large and Small Companies in Europe, Erasmus University (April 2015)

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 22

 A1: Valuation A2: Prognosis A3: Relative A6: Tax loss
A4: WACC A5: NWC
methodology assumptions valuation carry forward

Appendices | A5: NWC

We estimate a normalised net working capital of 12.6% of LTM revenue (quarterly average for the last 6
quarters)

Q-Free Norge AS - NWC

NOKm Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q4 18 Q4 19 Q4 20 Q4 21 Q4 22
LTM revenues 352.7 365.3 399.6 399.8 420.0 436.5 447.3 478.7 496.1 480.6 452.2 329.7 366.0 406.2 450.9 500.5
NWC 51.2 19.1 83.0 44.8 48.1 68.4 79.0 92.8 82.6 81.7 54.2 35.6 (10.6) 30.2 41.4 46.0 51.0 56.6 62.9
NWC in % of LTM revenue n/a n/a n/a 12.7% 13.2% 17.1% 19.8% 22.1% 18.9% 18.3% 11.3% 7.2% -2.2% 6.7% 12.6% 12.6% 12.6% 12.6% 12.6%
Change in NWC n/a (32.1) 64.0 (38.2) 3.3 20.3 10.6 13.8 (10.2) (0.9) (27.5) (18.6) (46.2) 40.8 11.2 4.6 5.1 5.6 6.2

Comments to the calculation

• Note that both NWC and revenue is adjusted to exclude effects from the Slovenia project which increased NWC and revenues significantly from 4Q16 to 2Q18.

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 23

 A1: Valuation A2: Prognosis A3: Relative A6: Tax loss
A4: WACC A5: NWC
methodology assumptions valuation carry forward

Appendices | A6: Tax loss carry forward

Present value of tax loss carry forward is estimated to NOKm 17,5

Q-Free Norge AS - Tax assessment

NOKm FY16 FY17 1H18 2H18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30
EBIT (23,1) (12,5) (0,3) 13,9 30,2 30,8 31,5 32,1 32,7 33,4 34,1 34,7 35,4
Tax deficit IB 134,4 157,4 169,9 170,2 156,3 126,1 95,2 63,8 31,7 (1,0) (34,4) (68,5) (68,5)
Utilized tax deficit 23,1 12,5 0,3 (13,9) (30,2) (30,8) (31,5) (32,1) (32,7) - - - -
Deficit carried forward 134,4 157,4 169,9 170,2 156,3 126,1 95,2 63,8 31,7 (1,0) (1,0) (34,4) (68,5) (68,5)

Utilised tax loss carryforward (23% tax rate) (5,3) (2,9) (0,1) 3,2 7,0 7,1 7,2 7,4 7,5 - - - -

Period 0,3 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0 10,0 11,0 12,0
Discount rate 1,0 0,9 0,9 0,8 0,7 0,7 0,6 0,6 0,5 0,5 0,5 0,4 0,4
Present value utilised tax loss carryforwards (5,2) (2,7) (0,1) 2,5 5,1 4,8 4,6 4,3 4,1 - - - -

NPV tax loss carry forward 17,5

Percentage of TLC to Q-Free AS 47%

Total deficit 288,8

Comments to the calculation

• The tax loss carry forward in Q-Free ASA at 31.12.17 is NOKm 288.8
• We assume that the tax loss carry forward will be split between Q-Free Norge AS and Q-Free ASA in the same ratio that the equity value is distributed.
• Based on the EBIT prognosis, the tax loss carried forward will be fully utilized in FY29.
• Net present value of future tax savings is calculated applying WACC of 7.4% (same as in DCF), reducing value of tax loss carried forward from 23% (nominal tax
rate) to 12,3% (effective tax rate).

Valuation of Q-Free Norge AS - Report – 30 Jun 2018 24

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